MinEx Consulting Strategic advice on mineral economics & exploration Long term trends in global exploration – are we finding enough metal? Richard Schodde Managing Director, MinEx Consulting Adjunct Professor, Centre for Exploration Targeting , UWA 11th Fennoscandian Exploration and Mining Conference 31 st October 2017, Levi, Finland
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MinEx Consulting Strategic advice on mineral economics & exploration
Long term trends in global exploration– are we finding enough metal?
Richard SchoddeManaging Director, MinEx Consulting
Adjunct Professor, Centre for Exploration Targeting , UWA
11th Fennoscandian Exploration and Mining Conference31st October 2017, Levi, Finland
MinEx Consulting Strategic advice on mineral economics & exploration
Overview
1. The Business Case for exploration
2. Long term trend in exploration expenditures
3. Long term outlook for exploration expenditures
4. Number of discoveries made
5. Long Term trends in Unit Discovery Costs
6. Forecast amount of metal discovered
7. Summary / Conclusions
MinEx Consulting Strategic advice on mineral economics & exploration
1. BUSINESS CASE FOR EXPLORATION
Its simple – for the industry to be sustainable it need to find (good) new deposits to replacewhat it mines
3
MinEx Consulting Strategic advice on mineral economics & exploration
The World’s demand for metals doubles every 20-30 yearsPrimary copper production for World: 1900-2050
0
5
10
15
20
25
30
35
40
1900 1920 1940 1960 1980 2000 2020 2040
Cumulative copperproduction for all history
(1000 BC to 2016 AD)= 687 Mt Cu
Cumulative copperproduction for all history
(1000 BC to 2016 AD)= 687 Mt Cu
Forecast cumulativedemand over next 26 years
(2017-2042)= 689 Mt Cu
Forecast cumulativedemand over next 26 years
(2017-2042)= 689 Mt Cu
Forecast DemandBased on 1.8% pa growth
Historic DemandAverage growth rate of3.2% pa over last 25 years
Note: Predicted spend is based on a set of multi-factor regression models for gold, copper,nickel, lead-zinc, uranium and other metals for the period 1985-2016
2017 US$ Billion
A Multi-Factor modelwas built to predict thelikely exploration spend
A Multi-Factor modelwas built to predict thelikely exploration spend
R2 = 0.91
PREDICTED
ACTUAL
11
The main driver isthe commodity price
MinEx Consulting Strategic advice on mineral economics & exploration
Forecast Exploration expenditures by CommodityNon-Bulk mineral exploration – World : 1975-2040
$0
$5
$10
$15
$20
$25
1975 1985 1995 2005 2015 2025 2035
Other
Uranium
Lead/Zinc
Nickel
Copper
Gold
Note: Based on a long-run price (in constant 2017 US Dollars) of $1150/oz Au, $2.75/lb Cu,$7.30/lb Ni, $1.00/lb Zn, $0.85/lb Pb and $37/lb U3O8
# Note: In this case, Primary includes Zn found in Pb deposits, and visa versa
100%
23% #
5%
17%
These ratios mean that 1t of Primary Zn+Pb will (on average) contain 0.70t Zn + 0.30t Pb.In addition, for every 1t of Primary Zn+Pb found, an additional 0.23t by-product Zn and 0.07t of by-product Pbwill be found in other deposits
MinEx Consulting Strategic advice on mineral economics & exploration
6. FORECAST AMOUNT OF METAL DISCOVERED
Estimates are made of the amount of Au, Cu, Zn, Pb and Ni likely to be found overthe next 25 years. This is then compared against the likely future amount required tosustain the projected mine production
41
MinEx Consulting Strategic advice on mineral economics & exploration
Methodology used to forecast the future amountof gold discovered
Based on a forecast gold price of US$1125/oz …
The multi-factor regression model predicts that global spend on gold exploration in ten years time(i.e. in 2027) will be around $6000 million
Based on past trends the likely unit cost of discovery in 2027 will be US$55/oz
On this basis, the likely amount of primary gold discovered will be [6000/55 =] 109 Moz
In addition, it is assumed the by-product gold makes up 18% of the total gold found (i.e. 24 Moz)
On this basis, the total amount of gold discovered in 2027 should be [109/(1-0.18) = ] 133 Moz
42
MinEx Consulting Strategic advice on mineral economics & exploration
Forecast Discovery Rate versus Mine Production : GoldWorld: 1975-2040
Note: Forecast discovery rate is based on long-run gold price of US$1150/oz in constant 2017 US Dollars, and aunit discovery cost of US$45/oz rising by $10/oz per decade.
Note: Forecast production rate assumes a 1% pa growth rate post 2022
301 Moz
43
At first “glance” the industryappears to be in-balance …
At first “glance” the industryappears to be in-balance …
MinEx Consulting Strategic advice on mineral economics & exploration
… however, not all of the gold discovered will be producedBased on past trends, it is likely that only 70% of the gold discovered will have a mine built onthem. And the average delay between discovery and development is likely to be 15-20 years
Due to mining and processing losses only 90% of the contained metal in the primary golddeposits will be recovered as gold-bars
The recovery rates for by-product gold (in say, a copper deposit) is estimated to be lower at ~80%
On this basis, the forecast amount of gold produced from discoveries made in 2027 will be …
109 Moz x 70% x 90% + 24 Moz x 70% x 80% = 82 Moz
In practice, the amount of gold produced could be less than this … as not all of the reportedresource is economic to mine
Global gold production in 2027 is forecast to be 119 Moz
The forecast rate of discovery isinsufficient to support this level of mining
The forecast rate of discovery isinsufficient to support this level of mining
44
MinEx Consulting Strategic advice on mineral economics & exploration
Cumulative Metal in Discoveries that become mines: GOLDAll Discoveries in the World >=100 koz
0%
20%
40%
60%
80%
100%
0 10 20 30 40 50 60 70
Cumulative %
Years from Discovery
1950-59
1960-69
1970-79
1980-89
1990-99
2000-16
Discovery Period99% #
65%
78%
86%
29%
69%
Cumulative % refers to those deposits that (eventually) turn into mines.Caution: Even if the deposit does get mined, not all of the contained metal will be extracted /covered.
# Note: The very high metal conversion rate in the 1950s is due to very large (and economic) gold discoveries in the Witwatersrand in South Africa
After adjusting for theconversion rate and processingloss, it is clear that we are not
finding enough new gold tosustain future production
After adjusting for theconversion rate and processingloss, it is clear that we are not
finding enough new gold tosustain future production
Note: Assumes a long-run gold price of US$1150/oz in constant 2017 US Dollars.The Replacement rate is based on adjusting the Discovery Rate for a 70% conversion rate for mining, anda 10% loss for mining & processing (and 20% loss for by-product metal)
ADJUSTED NUMBERS
47
MinEx Consulting Strategic advice on mineral economics & exploration
Forecast Discovery Rate versus Mine Production : CopperWorld: 1975-2040
0
50
100
150
1975 1985 1995 2005 2015 2025 2035
Est Unreported Discoveries
By-Product Discoveries
Primary Discoveries
Mine Production
Forecast Mine Production
Mt Cu
Forecast ->>
Note: Forecast discovery rate is based on long-run copper price of US$2.75/lb in constant 2017 US Dollars, and aunit discovery cost of US 3.0 c/lb
Note: Forecast production rate assumes a 1.8% pa growth rate post 2022
MinEx Consulting Strategic advice on mineral economics & exploration
Estimated Replacement Rate versus Mine Production : CopperWorld: 1975-2040
0
50
100
150
1975 1985 1995 2005 2015 2025 2035
Est Unreported Discoveries (Adjusted)
By-Product Discoveries (Adjusted)
Primary Discoveries (Adjusted)
Mine Production
Forecast Mine Production
Mt Cu
Forecast ->>
Note: Assumes a long-run gold price of US$2.75/lb Cu in constant 2017 US Dollars.The Replacement rate is based on adjusting the Discovery Rate for a 60% conversion rate for mining, anda 12% loss for mining & processing (and 20% loss for by-product metal)
MinEx Consulting Strategic advice on mineral economics & exploration
Forecast Discovery Rate versus Mine Production : ZincWorld: 1975-2040
0
10
20
30
40
50
1975 1985 1995 2005 2015 2025 2035
Est Unreported Discoveries
By-Product Discoveries
Primary Discoveries
Mine Production
Forecast Mine Production
Mt Zn
Forecast ->>
Note: Forecast discovery rate is based on long-run zinc price of US$1.00/lb in constant 2017 US Dollars, and aunit discovery cost of US 3.0 c/lb for Zn+Pb (with a 70:30 split between Zn and Pb)
Note: Forecast production rate assumes a 1.8% pa growth rate post 2022
MinEx Consulting Strategic advice on mineral economics & exploration
Estimated Replacement Rate versus Mine Production : ZincWorld: 1975-2040
0
10
20
30
40
50
1975 1985 1995 2005 2015 2025 2035
Est Unreported Discoveries (Adjusted)
By-Product Discoveries (Adjusted)
Primary Discoveries (Adjusted)
Mine Production
Forecast Mine Production
Mt Zn
Forecast ->>
Note: Assumes a long-run zinc price of US$1.00/lb in constant 2017 US Dollars.The Replacement rate is based on adjusting the Discovery Rate for a 60% conversion rate for mining, anda 12% loss for mining & processing (and 20% loss for by-product metal)
MinEx Consulting Strategic advice on mineral economics & exploration
Forecast Discovery Rate versus Mine Production : LeadWorld: 1975-2040
0
5
10
15
1975 1985 1995 2005 2015 2025 2035
Est Unreported Discoveries
By-Product Discoveries
Primary Discoveries
Mine Production
Forecast Mine Production
Mt Pb
Forecast ->>
Note: Forecast discovery rate is based on long-run price of US$1.00/lb Zn and $0.85/lb Pb in constant 2017 US Dollars, and aunit discovery cost of US 3.0 c/lb for Zn+Pb (with a 70:30 split between Zn and Pb)
Note: Forecast production rate assumes a 1.0% pa growth rate post 2022
MinEx Consulting Strategic advice on mineral economics & exploration
Estimated Replacement Rate versus Mine Production : LeadWorld: 1975-2040
0
5
10
15
1975 1985 1995 2005 2015 2025 2035
Est Unreported Discoveries (Adjusted)
By-Product Discoveries (Adjusted)
Primary Discoveries (Adjusted)
Mine Production
Forecast Mine Production
Mt Pb
Forecast ->>
Note: Assumes a long-run price of US$1.00/lb Zn and $0.85/lb Pb in constant 2017 US Dollars.The Replacement rate is based on adjusting the Discovery Rate for a 60% conversion rate for mining, anda 12% loss for mining & processing (and 20% loss for by-product metal)
MinEx Consulting Strategic advice on mineral economics & exploration
Forecast Discovery Rate versus Mine Production : NickelWorld: 1975-2040
0
2
4
6
8
10
1975 1985 1995 2005 2015 2025 2035
Est Unreported Discoveries
By-Product Discoveries
Primary Discoveries - NiLat
Primary Discoveries - NiS
Mine Production
Forecast Mine Production
Mt Ni
Forecast ->>
Note: Forecast discovery rate is based on long-run nickel price of US$7.30/lb in constant 2017 US Dollars, and aunit discovery cost of US 5 c/lb for Nickel Laterites and 28 c/lb for Nickel Sulphides, rising by 4c/lb per decade
Note: Forecast production rate assumes a 2% pa growth rate post 2022
MinEx Consulting Strategic advice on mineral economics & exploration
Estimated Replacement Rate versus Mine Production : NickelWorld: 1975-2040
0
2
4
6
8
10
1975 1985 1995 2005 2015 2025 2035
Est Unreported Discoveries (Adjusted)
By-Product Discoveries (Adjusted)
Primary Discoveries - Ni Lat(Adjusted)Primary Discoveries - Ni S (Adjusted)
Mt Ni
Forecast ->>
ADJUSTED NUMBERS
Note: Assumes a long-run nickel price of US$7.30/lb in constant 2017 US Dollars.The Replacement rate is based on adjusting the Discovery Rate for a 65% conversion rate for mining NiS (45% for NiLat), anda 12% loss for mining & processing (15% for NiLat) and 20% loss for by-product metall
MinEx Consulting Strategic advice on mineral economics & exploration
Implications
In the short- to medium-term, industry will draw down on existing inventory ofundeveloped resources. However to be sustainable in the longer term weneed to either spend more on exploration or be much better at discovery.
If not, the gold price will need to rise …- so as to stimulate additional exploration, and- encourage marginal projects to be developed.
Higher gold prices will also …- help grow the resource base through lowering the cut-off grade, and- reduce overall consumer demand (and reduce mine production)
56
MinEx Consulting Strategic advice on mineral economics & exploration
Cautionary Note
It should be emphasised the above analysis of the long term sustainabilityof the mining industry involves several simplifying assumptions :
Ignores the dynamic and uncertain nature of exploration Assumes steady commodity prices Doesn’t take into consideration the time lag between discovery
and development No consideration is made of the current inventory of
undeveloped projects Doesn’t model the effect of changes in prices and costs on output
from existing mines Doesn’t adjust for potential changes in metal demand
“Health”warning“Health”warning
MinEx Consulting Strategic advice on mineral economics & exploration
Many of these issues were addressed in a recent report by MinEx Consultingassessing the 40 year production outlook for the Australian gold industry
Long-term forecast of Australia’s mineral production and revenueThe outlook for gold: 2017-2057
By Richard SchoddeOctober 2017
It uses a Monte-Carlo approach to model the effect of uncertainty of thelikelihood of existing mines, new projects and exploration success
A copy of this reportcan be downloaded
from my website
A copy of this reportcan be downloaded
from my website
MinEx Consulting Strategic advice on mineral economics & exploration
Forecast gold price and exploration expenditures - Australia : 1995-2057
MinEx Consulting Strategic advice on mineral economics & exploration
0
2
4
6
8
10
12
14
1995 2005 2015 2025 2035 2045 2055
Exploration Success
New Projects
Existing Mines
Historical
Forecast sources of Gold ProductionAustralia: 1995-2057
Moz pa
Note: Mean/Average forecast only. Due to uncertainty in commodity prices and exploration successthe likely forecast figure (at a 90% Confidence Interval) will vary by +/-40%.
Of concern is that the averagedelay between discovery anddevelopment is 13 years
MinEx Consulting Strategic advice on mineral economics & exploration
Key take-aways from the Australian Gold study
• Even under a wide range of possible scenarios, it is clear that the long termsustainability of the industry critically depends on sustained explorationsuccess
• Due to the long lead times between discovery and development –Government & Industry need to support exploration now … to offset the realrisk of a supply disruption in the medium term
MinEx Consulting Strategic advice on mineral economics & exploration
7. SUMMARY /CONCLUSIONS
63
MinEx Consulting Strategic advice on mineral economics & exploration
Summary / Conclusions [1/2]
1. The Business Case for exploration- Over the next 26 years the World will produce as much copper as that mined in all history. To sustain theindustry we need to find new deposits
2. Long term trend in exploration expenditures- The industry is highly cyclical. Even so over the last 50 years, exploration expenditures (in real terms) haveincreased 3-fold
3. Long term outlook for exploration expenditures- Expenditures are strongly linked to commodity prices. MinEx forecasts that global exploration expenditureswill rise by 65% (in real terms) over the next decade
4. Number of discoveries made and contained metal
- Number of discoveries made has slowly risen over time. However it there has been recent drop-off in therate of discovery
MinEx Consulting Strategic advice on mineral economics & exploration
Summary / Conclusions [2/2]
5. Long Term trends in Unit Discovery Costs- The unit cost of discovery for gold is projected to be US$45/oz (and rising). Copper is 3c/lb, Zinc & Lead is 3
c/lb, nickel laterites is 5 c/lb and nickel sulphides are 28 c/lb (and rising)
6. Forecast amount of metal discovered- After adjusting for the likelihood of discovery being converted into a mine, and factoring in mining & processing
losses it appears that the industry is finding enough copper to sustain itself. But this is not the case for gold andlead. Severe shortfall s projects for zinc an nickel
In the short- to medium-term, industry will draw down on existing inventory of undeveloped resources.However to be sustainable in the longer term we need to either spend more on exploration or be muchbetter at discovery.
If not, the gold price will need to rise …
MinEx Consulting Strategic advice on mineral economics & exploration
Contact details
Richard SchoddeManaging DirectorMinEx ConsultingMelbourne, Australia